A deal I can’t do

I’m looking at a deal right now that doesn’t work for my funds because there’s not enough margin in it to flip or to earn the kind of yields that our investors expect.

But it’s a reasonable deal for an individual willing to roll his/her sleeves up and do some work. How can this be?

The answer is in the leverage available to individuals vs. the leverage available to LLCs.

As an individual investor, you can fix a 30 year loan for $800k at around 4.75% on a 2-4 unit deal. If you can use that kind of leverage on a deal where, fully renovated, you’re in for 11x the rent in an improving area, you’re going to be happy with the result.

Those loans are not available to LLCs. The best we can do on a 2-4 unit deal is something like 65% LTV, fixed for 10 years, interest-only. The cashflow on this will be pretty decent, but there’s not really an exit play. So, we pass.